Agro: economy should grow more in the South and Midwest – 06/12/2023 – Market

With the impetus of the agricultural harvest, economic activity tends to grow above 5% in the South and Midwest regions of Brazil in 2023, projects the consultancy MB Associados.

Thus, the duo must move away from regions that are more dependent on urban sectors, as is the case of the Southeast. In these places, the forecast is for a lower performance with the tightening of high interest rates on consumption, according to the consultancy.

“It’s as if we had two Brazils”, says the chief economist at MB Associados, Sergio Vale, who is responsible for the projections.

“One is the Brazil of commodities, which are doing well, and the other is feeling more the effect of interest rates”, he adds.

In the accumulated of 2023, economic activity tends to grow 5.98% in the South and 5.08% in the Midwest, according to the MB. The advance should be 2.86% in the North, 1.46% in the Northeast and 1.18% in the Southeast.

Forecasts are based on economic activity data released by BC (Central Bank). The monetary authority publishes the IBCR, with regional coverage, and the IBC-Br, with national coverage.

The indicators signal trends for the GDP (Gross Domestic Product), calculated by the IBGE (Brazilian Institute of Geography and Statistics).

According to Vale, data from the institute’s National Accounts, which show the behavior of GDP, are also observed for the analysis of the scenario.

According to the IBGE, the Brazilian GDP grew 1.9% in the first quarter of 2023, the most recent period for which information is available.

The impetus came from the 21.6% increase in agriculture, the highest since 1996, while the services sector increased by 0.6%, and industry retreated by 0.1%. The field result is associated with projections of a record harvest in 2023.

In the case of the South, Vale considers that the 5.98% increase expected for economic activity this year comes after a weaker performance in 2022 (1.09%). At the time, agricultural production in the region was hampered by a severe drought.

There was also a drought in 2023, but the lack of rain was more restricted to areas of Rio Grande do Sul.

“The drought was more extensive last year and became more concentrated this year”, says Vale.

In the Midwest, the forecast for growth of 5.08% in 2023 comes after an even stronger advance in economic activity in 2022 (5.83%).

This year, says Vale, it is the production in greater quantity that tends to stimulate local agriculture. In previous years, there was a boost from the exchange rate and higher commodity prices, according to him.

“Prices and the exchange rate were very relevant to increase income. Now, the impact is the production volume”, he says.

The MB expects a slowdown in both the Southeast and Northeast amidst high interest rates, which affect segments such as commerce and industry.

In the Southeast, the forecast for an increase of 1.18% in 2023 comes after growth of 3.45% in 2022. In the Northeast, the projection indicates an increase of 1.46% this year, after the increase of 3.84% in the year past.

The North, in turn, should be in the middle of the ranking of regions. MB expects local economic activity to rise 2.86% after rising 2.2% in 2022.

The performance of the extractive sector and the weight of agriculture in part of the region tend to offset the effect of high interest rates on consumption and investments. “It is a more diffuse region”, points out Vale.

Harvest should impact food inflation

The MB also claims that the forecast for a record harvest should generate relief for food prices in 2023. The high price of food has been one of the villains of inflation for Brazilians.

For now, the consultancy estimates that food at home will rise 3.2% in the accumulated of 2023 in the IPCA (National Index of Prices to the Extended Consumer), which is released by the IBGE. The bias of the MB estimate is downward.

That is, the advance can be even smaller, and even a deflation (fall in prices) is not ruled out. Food at home closed the year 2022 with an accumulated increase of 13.23%.

“Perhaps we are heading towards the 2017 scenario”, says Vale.

That year, the growth in the crop contributed to lower food inflation, according to the economist. There was a deflation of 4.85% at the time.